Advocates of renewable energy have always argued that our technologies are more environmentally sustainable than conventional energy options. Yet it has been only within the past decade that groups such as the Intergovernmental Panel on Climate Change and the United Nations Framework Convention on Climate Change (a.k.a. the Kyoto Protocol), among countless others, have scientifically confirmed our long-held contention that the consumption of fossil fuels is the major cause of global warming.
Much of the immediate focus from this 'sudden' revelation of fact has been to support methods which can clean up dirty energy through sequestration (carbon capture and storage), clean coal paradigms, IGCC or other methods which will allow our society to continue a high level of consumption of fossil fuels, albeit with a lower carbon footprint per final unit.
To the dismay of many environmentalists, this focus has also involved a significant commitment to nuclear as a low-carbon source of electricity and, to the dismay of some people who like to eat, it includes targets to divert grain stocks to the production of ethanol that can be used to power more SUVs.
Sneaking up along the margins is a growing recognition for the value of renewable energy in all three of the world's energy applications: green power, green fuels and green heat.
Wind is the front-line poster child for renewable electricity, still trailing large hydropower and deep geothermal but comfortably ahead of solar PV, CSP, wave, tidal, OTEC and other renewable energy…for now. The race for clean transport fuels becomes messier by the cob, and my personal prediction is that enough countries have started down a road that will require serious policy re-tinkering within a half-decade.
In the interim, the potential for renewable energy to become the 'feedstock' for hydrogen fuel cells seems muted after some notable progress in recent years. Biomass will always be the world market leader for space conditioning and water heating, simply because it is the ONLY energy source for two million people, although solar thermal and heat pumps could make serious inroads in market share for developed countries.
As part of the gentle efforts to subtly nudge an eventual start towards a slow transition to non-conventional energy sources, a growing number of jurisdictions around the world are starting to rely on carbon schemes which ascribe a direct commercial value on the supply of energy from renewables.
Whether it is a 'renewable portfolio standard' that requires an electric utility to source an increasing percentage of its electrons from renewable energy, or an 'emission trading scheme', where heavy emitters can buy offset credits from cleaner sources, the result is an economic benefit to the developers or consumers of renewable energies.
The concept of a RPS is well understood so, over the coming months, this new column will examine the second option, and the potential and pitfalls for various renewables. The European Union Emission Trading Scheme (EU ETS) started in 2005 and recently entered its second phase of operation, while North America is developing two protocols (RGGI and WCI) and the International Carbon Action Partnership (ICAP) was created late last year to foster harmonisation of regional schemes.
To date, most ETS markets have focussed on low-hanging fruit, which leaves renewable energy in an increasingly positive position to benefit from this market opportunity. Although many of our technologies are perceived as a premium-cost product, the continued downward curve in cost will make renewables the lowest-hanging fruit in a growing number of cases, and the industry should be ready to optimise its potential at that time.
Key to the success of emissions trading under a carbon market is the belief that global warming is a global issue, and that any mitigation efforts taken in any region of the world are as sufficient as efforts taken in any other region. Unlike a RPS, where green electrons often must be generated by a specific technology in a specific locale (often as much for economic development reasons as for energy or environmental rationale), an offset is a net reduction in GHG emissions that can be verified in any region (the rules are different under the different schemes).
This can dramatically clarify any cost issues, as (literally) thousands of low-carbon schemes compete for the buyer. To this point, there has been no success in allocating 'bonus points' to renewable energy because, in the bottom line, they have no additional benefit to the high-emitting company whose only concern is to purchase offset credits at lowest possible price, to comply with its targets and goals.
A tonne of carbon captured at a methane facility in Africa, has the same impact as a tonne of carbon displaced by a wind farm in downtown Denmark; an open market will determine the price paid for either option, but the end result is the same.
Some of the murky questions to be addressed in this column will concern the issues of eligibility and verification, and how schemes can exist (and interact) in the absence of or compatibility among mandatory cap and trade programmes. There are still sceptics of climate change who point to 'Russian hot air' as a solid rationale for aborting any further action on emission trading schemes, and the lack of full information will impede a full and proper rollout of the future.
This column will explain a carbon market and how it does/could work for renewable energy, and examine why it should be encouraged by public policy and the appropriate response of industry. Timing is an important question, while barriers and identifying opportunities are key elements, along with the proverbial 'who wins and who loses'.
The global carbon market currently is estimated to be worth US$40 billion a year, and stakeholders expect this level to explode within the coming years. Remember, this is for the purchase of environmental attributes only, and usually does not represent the market value for the kWh, joule or litre of green energy itself. This is an economic opportunity that no business sector would want to miss but, like other opportunities, players must be aware of as many issues as possible.
We hope that our future issues will provide some of this information to you.